These guys aren’t sunny, NAR types. In the past, I thought they were overly pessimistic.

“… we find that the overall [U.S.] housing market is now undervalued 3.8 percent. That compares with a peak overvaluation of 24.5 percent during the second quarter of 2006.”

• Extreme overvaluation is now essentially nonexistent. Only three metro areas met our definition for extreme overvaluation during the third quarter of 2008, down from a peak of 52 metro areas in 2005. For the country as a whole, the housing market is slightly undervalued. When the 330 metro areas are weighted by market value, the nation is 3.8 percent undervalued. When weighted by housing units, the nation is 5.7 percent undervalued.

• Only the Pacific Northwest remains overvalued across a wide region. The protracted declines in 17 metros in California and Florida now result in their undervaluation.

Source: IHS Global Insight/National City Corp Joint Venture

Phoenix Housing Market

Click on the graphic below to see the recent history of home prices in metro Phoenix.

Phoenix house prices have gone from being 37.1% overvalued in the third quarter of 2006 to only 3.9% overvalued in the third quarter of 2008. That was a wild 2 years!

Click graphic above to enlarge.

Real Estate Geeks Only

Don’t miss “Appendix C: Metropolitan Area House Valuations / Past Price Corrections,” in the report.

This footnote is interesting, “The more severe the overvaluation, the greater the subsequent declines tend to be: correlation = +0.22.”

But this one is amazing, “The more severe the overvaluation, the shorter the duration tended to be: correlation = -0.28.” That suggests a short duration for the current housing price correction in Arizona.